The Only Leader Who Understood Greece's Real Problem Is Resigning

Greek Prime Minister George Papandreou seemed to grasp what others in Europe are missing: finances are only a symptom of Greece's broken society

Reuters

In August 1992, a man named Stefanos Manos landed a job as the
finance minister of Greece. He had been in and out of Greek politics
since 1977, but Manos finally had the job he wanted and the platform to
pursue something he'd evangelized for a decade: privatization. The Greek
public sector was enormous and growing ever-larger, beyond what Manos
believed was sustainable. But the problem, as the journalist Michael Lewis reported for his new book Boomerang, turned out to be worse than
probably even he had imagined. After looking into Greek finances, he
announced that he'd discovered, among other things, that the Greek national
railway was so poorly run and its public employees so overpaid that it
would be cheaper for the state to shut down the railway entirely and
give every customer taxi fare to their destination. The situation is not
much better today: the Greek railway has 700 million euros in annual
expenses, 400 million euro of which go to pay its employees, against 100
million euros in income. Manos warned them, but Greeks didn't want to
listen, and 15 months after he took office he was forced to resign.

This weekend, Greek Prime Minister George Papandreou announced that he will resign
once he and the Greek Parliament can finalize details on an emergency
election and interim government to lead the country through the tumult
of severe austerity and an increasingly certain default on the country's
massive debts. Papandreou has been pelted by criticism from Greeks for
accepting European-imposed austerity measures and from Europeans for
scheduling (and then cancelling) a Greek referendum on whether to accept
the austerity measures. The Prime Minister has two constituencies right
now -- Greek citizens and European Central Bankers -- and he's not
pleasing either.

But Papandreou seems to understand something
that Stefanos Manos had hinted at 20 years earlier: Greece's problem
isn't financial, though that's certainly a symptom. A few thousand years
after Greeks invented Western civilization, the basic premise behind it
has broken down: the Greek individual and the Greek state no longer
work in concert. Over the past generation, Greece has been slowly
devolving into a state of quiet anarchy. Maybe the soon-resigning Prime
Minister understood this as well as he appeared to or maybe he didn't.
But whoever succeeds him will have to address Greece's growing
ungovernability before he or she can hope to fix its finances.

Papandreou's
possibly most controversial move since his country's crisis began was
his decision to schedule a popular referendum on the European Union
bailout, which would also mandate severe and unpopular austerity
measures. The referendum enraged Europeans, who feared that Greeks might
unwisely reject the bailout, leading to a much harder default that
would harm the entire continent. And, even if they did pass it, the
delay would add unneeded instability to the already dangerously shaky
European markets. There seemed to be little point beyond giving himself
some political cover. But, whatever his actual motivation, Papandreou's
referendum would have done something that Greeks badly needed: rebuilt
some of the lost relationship between the Greek people and their state.

European
Central Bank critics were missing the point. Though a bailout and
austerity might help Greek balance sheets, they would do little to
resolve the underlying crisis: Greek people were out for themselves. The
Greek state, simultaneously attacked by so many of its citizens, was
unable to defend itself. Greek public sector workers had teemed up to
exploit wildly inflated salaries and benefits that the state could not
afford. Private sector workers became such incredible tax cheats that
the state had less and less revenue to pay out its expanding bills. At
home, cheating was common for everyone: Athenian taxpayers declared 324
swimming pools, on which a tax is levied. But a study using Google Earth
found that Athenians actually have 16,974 pools. Only one in about 52
Greeks in this particular sample size and on this particular issue, it
seems, was honest about their taxes.

People are honest to the tax
man for two reasons, one conscious and one often less conscious. The
first is that it's the law -- dodging on your taxes can land you a fine
or jail time. The second is that you recognize it's part of your
unstated compact with your government and with the society around you.
Your country might not collapse if you lie a bit about withholdings, but
it will if enough people keep back enough tax dollars. It's in your
interest to sacrifice a bit of your own money to the larger collective,
and most people in developed societies recognize and consent to this. We
consent to be governed. But, at some point along the way, Greeks
withdrew some of that consent. The state wasn't something they
sacrificed for; it became, as Michael Lewis put it, a
pinata.

This is part of why Greek people are so angry about the
imposed austerity cuts, irrational though that may seem to an outsider.
No one Greek broke the state. An individual person or family simply
found themselves within a system that encouraged cheating and exploiting
from the state and discouraged honesty or self-sacrifice. You saw
something like this after Hurricane Katrina hit New Orleans, where it
broke the social code, among other things. Before the storm, New Orleans
residents had largely observed the law. But when so much of the city
began looting grocery stores to secure enough food to survive, a lone
individual -- even if he or she wanted to be honest -- suddenly had
every incentive to join the looters. The federal government didn't
announce it was arresting thousands (or tens of thousands) of Orleanians
for looting; it recognized the problem was a broken social compact and
sought (however poorly) to fix the underlying issue. So while the
European Central Bank's imposition of austerity measures on Greece is
entirely reasonable, it only addresses the symptom of Greece's problem.

Papandreou's
referendum wouldn't have fixed that problem, but it would have at least
addressed it. A nation-wide vote on accepting a bail-out that Greece
clearly needed would have forced every Greek voter to decided,
individually, if he or she consented to the Greek state and was willing
to make the necessary sacrifices to keep it alive. It would have forced
them, in other words, to acknowledge that they are part of a collective
that will stand or fall on individual behavior. This wouldn't have ended
the quiet Greek anarchy, but it would have been a step away from it.

Even
the Greek Prime Minister's pledge to resign will help move Greece a
step further from anarchy and toward national collaboration. The
conditions of his resignation -- a Parliamentary deal on an interim
government and national elections -- forced the conservative opposition
to work with Papandreou on forging the new government, making them
complicit in Greece's governance. As in the U.S., the Greek political
opposition had been consent to sit on the sidelines and pelt the
country's leadership rather than participate in actual governance. Now
they will have to join in making the hard and necessary choices about
how to best keep Greece afloat.

If the European Union is going to
survive, Greece will have to begin remedying its real problems -- not
just its financial ones, which will surely repeat if the underlying
social issues remain. For any society to function, its people must
consent to be governed; Greeks have been giving less and less consent
for years, something that did not become clear until its financial
crisis. Papandreou tried to bring the Greek state and people back
together, something that will takes years to actually accomplish. If his
successor is to carry on this mission, he or she will need the European
Union's support. They should give it, and not just because the EU
relies on Greek financial stability. Italy is showing similar breaks in
the social fabric; corruption is on the rise and the political system
appears less and less capable of governing. Italy is the world's eighth
largest economy, larger than India or Russia. It's too late for Europe
to prevent Greek financial anarchy, but it might have time to at least
learn from it.

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